The case for interest rate cuts across Latin America has strengthened in the past month, partly because of the dovish shift by the Fed, but also because of soft domestic inflation and growth. Policymakers at central banks in Chile and Mexico struck a surprisingly dovish note in recent communications and we expect rates to be cut at the next meetings in both countries. The easing cycle in Mexico is likely to be larger than markets are pricing in. Elsewhere, progress with Brazil’s pension reform has opened the door to rate cuts next week and the Selic rate will ultimately end up lower than most currently think.
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